Learn the business failure that cost Tesco £6.4 billion

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Tesco was once a beacon of business success, steamrolling the grocery competition with seemingly endless store openings to accompany eye-catching annual profits. But the corporate juggernaut which has steadily been in decline came to halt following the announcement of the biggest ever recorded pre-tax loss of £6.4 billion < http://www.bbc.co.uk/news/business-32408755>, just one year on from a £2.26 billion profit margin.

Now on the face of it, that would be enough to close even the hardiest of businesses, so it pays to take a look beyond the figures.

Tesco is still a giant, accounting for almost 40 per cent of a UK grocery market with an estimated value of almost £175 billion per year. Yet the fact it has stumbled so badly given its formidably strong position is worth investigating because it offers a lesson for all businesses to heed.

Firstly, Tesco knew they were having a profitably bad year, and when you have to give results to the market, you might as well give as much bad news as possible this year so future years look like you’ve quickly turned things around, rather than spread out the bad news and suggesting you have had several ‘mediocre’ years.

So they revalued many of their properties to reflect more conservative prices, and this accounted for £4.7bn reduction. This isn’t really a ‘loss’ per se, although with the expected closure of almost 50 stores across the country, it may well become realized in the next year, and it certainly won’t have helped their share price.

But what about the other £1.7bn? A swing of almost £4bn – What happened?

Simply put, Tesco stopped innovating. It’s easy to forget that Tesco blazed a trail with its Clubcard loyalty scheme – a move that its competition never fully recovered from. Tesco also accelerated the hypermarket model, upping the product range to create single supplier shopping centres, while its Tesco Local stores changed the corner shop culture forever. But since then, while its competitors have steadily eaten away at market share, particularly the perceived low-cost alternatives Aldi and Lidl, Tesco has become a monolith, reacting to the market rather than dictating it.

The current customer experience of buying groceries is going through another massive change. More and more people are switching to the convenience of ordering online, and with the major supermarkets providing price matching ‘offers’, the battle of getting and keeping customers is intensifying. Getting the customer experience right, at an acceptable price will be key. Upset your customers and they will simply switch to your competition.

There’s plenty of time and money in the coffers to ensure Tesco can get itself back on track. But until it rediscovers the flair for innovation, it is likely to find itself constantly dealing with the impact of decline. Markets and customers change all the time, and as the speed of communication and business accelerates, those businesses must be nimble and not expect to trade on previous successes indefinitely. To really stay ahead of the competition, you need to be a constant innovator

Has your business forgotten how to innovate? If you’d like to chat over a coffee and brainstorm some ways to kick start the creativity which wins you customers, then get in touch : email rogerlamb@actioncoach.com, or call me on 01962 670200.